The word “audit” often conjures up images of stern officials in suits pouring over every coffee receipt from 2019. In reality, a Canada Revenue Agency (CRA) audit is usually a routine verification process. However, being unprepared can turn a routine check into a long, expensive headache. Here is how to navigate audit season with your sanity intact.
Know What They’re Looking For
The CRA doesn’t pick names out of a hat. Often, audits are triggered by “red flags”—discrepancies between your reported income and your lifestyle, or business expenses that seem unusually high for your industry. For example, if you claim $20,000 in “Travel” for a local consulting business, expect a phone call.
The Golden Rule: Documentation
The CRA operates on the “prove it” principle. A bank statement shows you spent money, but it doesn’t prove what you bought. You need the original itemized receipt. If you are still stuffing these into a shoebox, it’s time to modernize. Use cloud-based tools to scan receipts the moment you get them. Digital copies are legally acceptable and much harder to lose.
Common Pitfalls: Vehicle and Home Office
These are the two areas the CRA scrutinizes most heavily. If you claim vehicle expenses, a mileage log is non-negotiable. Without a record of dates, destinations, and kilometers driven for business, the CRA can (and often will) deny the entire claim. Similarly, for home office deductions, ensure you have a clear calculation of your workspace’s square footage relative to the total finished area of your home.
Professionalism is Key
If you are selected for an audit, be polite and organized. Provide exactly what is requested—nothing more, nothing less. Over-sharing can sometimes open doors to questions you weren’t prepared for. If the process feels overwhelming, don’t hesitate to involve a professional. Having an accountant act as your representative can provide a necessary buffer and ensure the “tax-speak” is handled correctly.
Contact us for a free consultation or call us at 905-246-1267
